FROM: DEPARTMENT OF LABOR
$10M settlement reached with People Care and US Labor Department
Agreement includes more than $9M to employee stock ownership plan
WASHINGTON — The U.S. Department of Labor today announced a $10 million settlement agreement with People Care Holdings Inc. and former owners Bruce Jacobson and Jerry Lewkowitz, who sold the company to their employees through creation of an employee stock ownership plan. The department contended that they violated the Employee Retirement Income Security Act by permitting the ESOP to purchase People Care stock from them for more than its fair market value.
An investigation by the Employee Benefits Security Administration's New York Regional Office found Jacobson, Lewkowitz and People Care breached their fiduciary duties by failing to correct unrealistically optimistic projections of People Care's future earnings and profitability, even after People Care lost a key municipal contract. The investigation also found that the stock purchase agreement's indemnification provision was invalid because it would require People Care, which is entirely owned by the ESOP, to pay any costs incurred by Jacobson and Lewkowitz in connection with an investigation or litigation.
"Owners who sell their companies to their employees and benefit from ESOP tax treatments are responsible for ensuring that the terms are fair to the plan and its participants," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "They have a duty to monitor the independent trustees that they appoint to oversee the transaction."
Under the terms of the settlement agreement, Jacobson and Lewkowitz will pay $9,090,910 to the ESOP and a civil penalty of $909,090.
People Care is a home-care agency, based in Manhattan, that provides caregiving services, such as meal preparation, laundry, shopping, housekeeping, companionship and medication assistance. Its ESOP has approximately 4,655 ERISA-covered plan participants. It has facilities in New York and New Jersey.
